Explains the Liquidity Concepts

Introduction

Liquidity refers to the availability of buy and sell orders in the market. Large financial institutions or “smart money” often target liquidity areas to fill their large orders. This concept helps traders identify where price is likely to move based on the actions of these institutions.

Explanation of the Image

1. Bullish Trend and Swing BOS:
   • The chart starts with a bullish trend, where the price forms Higher Highs (HH) and Higher Lows (HL).
   • The term BOS (Break of Structure) indicates a significant price breakout beyond previous highs or lows, confirming a change or continuation in market structure.
   • The Swing BOS marks the first major breakout, initiating the bullish trend.
2. Pro Orderflow Demand Zone:
   • Highlighted in blue, this zone represents an area where significant buy orders are concentrated. It acts as a strong demand zone, supporting price movements upwards.
3. Liquidity Build-Up:
   • Price moves with pullbacks and consolidations, forming areas where liquidity is “trapped” (e.g., stop losses of retail traders).
   • These areas are potential targets for smart money as they aim to trigger these stop-loss levels and fill their own large orders.
4. Liquidity to Target for Longs:
   • The dashed lines point to liquidity areas above significant highs, indicating where smart money might push prices to capture liquidity before reversing or continuing the trend.
5. Bullish Continuation:
   • After capturing liquidity, the price continues its upward trend, breaking new structures (BOS) and forming new highs.
6. Re-Entry at Demand Zones:
   • Yellow circles highlight zones where price retraces back to the Pro Orderflow Demand Zone or newly created demand zones.
   • These are key areas for traders to look for potential buy entries.

Key Takeaways

• Break of Structure (BOS): Identifies market trends and key levels where price action confirms movement.
• Liquidity Zones: Areas where retail traders’ stop losses accumulate, targeted by institutions to trigger moves.
• Demand Zones: Areas where price is likely to reverse or continue a trend due to institutional buy orders.
• Bullish Continuation: After liquidity is captured, the market often continues in the direction of the primary trend.

This image demonstrates the importance of identifying liquidity and demand zones to align trades with institutional order flow, increasing the probability of success in trading.